In 2010, the OFT fined Reckitt Benckiser £10.2 million for abusing a dominant position, following an investigation which was originally sparked by a ‘whistleblower’ providing information to BBC’s Newsnight programme (see below*).

Now Reckitt Benckiser’s rivals (Teva, Sandoz and Pinewood Laboratories) and some of its largest customers (the UK’s health authorities) are pursuing it for damages in follow-on cases in the UK High Court. At a case management conference (CMC) that began in the High Court today, the parties put forward arguments over how the litigation should be managed, including whether or not aspects of it should be dealt with ahead of the trial, which is expected in early 2015. One of these aspects is whether generic rivals would have entered the market to challenge Reckitt Benckiser. This is important because one of the key issues for the case will be the concept of potential competition and the relevance of whether and when other generic competitors would have been able to come to market and effectively remove the consequences of Reckitt Benckiser’s actions. Similar complex issues around the ‘but-for’ world or ‘counterfactual’ arise in ‘pay-for-delay’ cases under Article 101.

In pay-for-delay cases, competition authorities need to show that the settling generics would have been able to enter the market in the absence of the agreement.

In Reckitt Benckiser, the claimants need to argue that competitors would have entered and driven down prices. If they can prove this, the damages to which Reckitt Benckiser will be exposed may be much higher. It is worth thinking about the issue of damages a little further, as this will be far from straightforward. The first major uncertainty is of course the amount of the award, i.e. the size of the ‘damages pie’ – this uncertainty is part and parcel of all litigation therefore is not unique to follow on actions such as these.

More interesting is the second source of uncertainty: the apportionment of the damages amongst the claimants in follow on cases in this sector. The ‘damages pie’ will be differently divided between the generics and the public health agencies, and between the generics amongst themselves, depending on: (i) who would have entered, (ii) when they would have entered, and (iii) the effect of such entry on reimbursement price. So, if a significant number of generics would have entered, let’s say at around the same time, the lower the price that each of them would have been able to command due to competition from each other – the portion of the ‘damages pie’ available to the generics in any award would be smaller than if only one or two would have entered. Conversely, if a significant number of generics would have entered, at the same time, driving prices lower, then the higher the loss suffered by the public health authorities – the portion of the ‘damages pie’ for the public purse would therefore be greater than if only one or two generics would have entered.

The permutations are thus many and complex and will depend heavily upon the facts and evidence presented to the Court. So much for the supposed ‘simplicity of follow on actions.

In both pay-for-delay cases and in this case, there is also the question of principle about whether the effects of the agreement/conduct is considered purely: (i) ex ante, i.e. in this case looking at the likelihood that generics would enter at the time when Reckitt Benckiser took steps to prevent generic prescription, or (ii) ex post, i.e. looking at what happened in fact in the period after the conduct. The debate and the need for a 2 day (or more?!) CMC demonstrates that ‘follow-on’ actions, supposedly more straightforward than ‘standalone’ competition law actions, are riddled with complexities. We gather that other issues dealt with at the hearing included delays to the publication of drug details, and of course the crucial issue of disclosure.

The CMC comes at a time when private actions in competition law are generally in the spotlight, with the UK Government in the process of making significant reforms with the aim of making it easier for consumers and businesses to obtain compensation (see article). Undoubtedly, it would like to see many more such actions in the future, especially as some of the damages in actions such as these might end up in the public purse. If such cases result in significant awards, this will add further pressure on pharma innovators, many of whom are still reeling from the intrusive European Commission’s Pharmaceutical Sector Inquiry, as well as the Commission ‘pay-for-delay’ cases, such as those which we have reported on elsewhere (see here and here).

*In 2010, Reckitt Benckiser admitted that it had manipulated the prescription/dispensing process for its well-known heartburn treatment, Gaviscon. In the UK, when a drug’s patent has expired, a ‘generic name’ is assigned to it. In general, General Practitioners (GPs) in the UK are encouraged to write open prescriptions using a drug’s generic name, thereby allowing the pharmacist to dispense the branded or cheaper generic version. If a branded medicine is prescribed, pharmacists are committed to dispensing that specific treatment. In 2005, when the patent for Gaviscon Original Liquid had expired, Reckitt Benckiser withdrew it from the NHS prescription channel. This withdrawal took place before a ‘generic name’ had been assigned to it and meant that GPs prescribing Gaviscon had to prescribe Reckitt Benckiser’s newer patented medicine, Gaviscon Advance Liquid, for which there was no generic version.

The OFT found that this behaviour had hindered pharmacy choice and competition from generic medicines. The investigation is just one of many examples where national competition authorities have pursued practices in recent years which are otherwise entirely permitted by the layers of regulation that innovators must comply with. These investigations follow on from the controversial AstraZeneca case in Europe: in this case the European Commission held, and the European Courts agreed, that an abuse of a dominant position could include misleading regulators and misusing regulatory procedures. See also an earlier article.